DeFi gives the financial banking and savings system a run for its money. It offers new ways to get in touch with your inventory by eliminating the middleman, making transactions faster, safer and more anonymous. It also gives investors access to unprecedented returns through staking, yield farming and lending, all without having to sign a single document or meet a broker in person.
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In addition, the decentralized financing is included. With 1.7 billion people without a bank account in the world, this is a massive missed opportunity. The same people are still into money, but often use niche forms of financial services that can include check cashers, payday lenders, and money orders. It is these poorest people who pay the highest fees for their monetary transactions.
Alternative financial services work similarly to traditional banks, with one big difference – these services come at a higher price. On the flip side, people with and without bank details almost always have cell phones, so the availability of alternative financial services presents a real opportunity for them to move money over their phone even if they pay more for it.
Using blockchain to expand inclusivity
This is where the blockchain stands out. No matter where you are or who you are, you can use blockchain and especially decentralized financing to make payments, invest, borrow and even lend money. You never have to sign any paperwork as all transactions are conducted and authenticated over the blockchain, making this activity tamper-proof and fully automated.
Therefore, the vision of many blockchain-based DeFi apps and projects is inclusivity, a way to democratize banking for everyone. One such company is hello. It strives to be a catalyst for financial inclusion and aims to serve communities with and without bank accounts.
We spoke to hi co-founder Sean Rach to learn more about how the industry is addressing the financial inclusion challenge. Rach is a former Navy Seal who has assumed significant responsibility for cryptographic custody as he was responsible for the communication codes used by the US Navy. He is also the former CMO of Crypto.com.
The concept of DeFi may seem new, but Rach believes it is rooted in the concept of “microfinance”. He opens the discussion by explaining what has changed.
“Muhammad Yunu’s remarkable work in founding Grammen Bank in 1983 and the concept of micro-lending, author of the book“ Bankers to the Poor ”in 2003 and being awarded the Nobel Peace Prize in 2006 has made a great contribution to the world .
The biggest thing that has changed since he pioneered his ideas is the rise of telecommunications and, in particular, the smartphone. Even with a simple telephone connection (3G), a bank customer has access to information, services and options that would otherwise not have been available to them. I think that’s the root of DeFi. “
Assessment of the existing DeFi landscape
Currently, the DeFi market is home to a variety of apps and platforms that allow users to save money by staking agriculture in exchange for generous yields. These can be between 6% APY and more. This cannot be compared with any savings product on the traditional market. Products on the blockchain are not necessarily tied to traditional money markets, which makes certain assets inflation-proof and is often a great way to hedge against the risks associated with traditional savings or investment risks.
Rach explains, “While alternative financial services (AFS) and even banks try to make money on behalf of their customers, DeFi is proving that users can make money directly using the various protocols. Without a central authority that seeks to take profit, there are far greater opportunities to redistribute the value of blockchain-based financial services back to users. “
However, today’s DeFi landscape is not necessarily ready to master this challenge. While users have invested over $ 170 billion in DeFi applications in the last year or two, it’s still a relatively niche segment aimed at a small group of investors.
Size of the gap
Rach explains the current state of affairs and points out, “DeFi has grown in importance so quickly, but there is still a lot of room for development to become a mass attraction. The decentralized nature of DeFi solves several critical problems with the current banking system – trust is one of the most important, but the openness and community-driven protocols also make it truly accessible. “
He continues on the status quo:
“We have to be honest with ourselves about the DeFi stand. We are only at the beginning. DeFi platforms currently reach around 3-5 million people – a far cry from the estimated two billion people who do not have a bank account.
DeFi holds great promise with the ability to help these people grow their money reliably over time as they do not have access to the traditional banking system. The potential to earn interest on deposits instead of tucking cash in a coffee can or getting a loan at competitive rates or dealing with loan sharks exploiting the neediest can change the world. “
Does he think this only applies to emerging economies or also those without a bank in industrialized countries?
“When you study the remittance industry (a $ 440 billion industry in 2020) there is often a connection between the two – with people sending money back to their home country. Both can benefit from this, but the shape can be different depending on needs, and this is where the appropriate user experience will be a key to acceptance. “
Make DeFi more inclusive
The point about the user experience is very important to Rach. A poor user experience is a problem that has been ubiquitous in crypto since its inception, and it goes deeper than just clunky interfaces and lack of customer support.
Rach explains, “We have made tremendous strides in crypto over the past few years, but we are still asking too much from users. Navigating wallets and exchanges, high transaction fees, slow block times, the need to pay transaction fees in the native platform token – all of this blocks acceptance and thus also financial inclusion. “
Rach and his co-founder founded hi believing that global, open, instant, and inexpensive / free money movements will create immense economic opportunities. They believe that sending money should be as easy as sending a text message and hi is the result of their efforts to make that vision a reality.
Hi users can hold money, even in digital currencies, they can get much higher returns on deposits than anywhere else, and they can be rewarded for using the native token called hi-dollar. You can also use a virtual debit card to spend and exchange money at interbank rates. Ultimately, hi aims to offer a comprehensive, open, and accessible suite of banking services. From the user’s point of view, however, they can manage this from an existing chat app on their phone.
Rach explains: “With 3.8 billion smartphones worldwide and each of them connected to a chat messenger, we think it makes sense to skip the app download step and get members on board immediately via Telegram and WhatsApp. We also offer a web app (web.hi.com) and will shortly be releasing our mobile app (for iOS and Android) with a graphical user interface. “
Turn the banking system upside down
According to Rach, products like hi are turning the banking system upside down by “bringing the concept of a credit union / community bank into the digital age. Our members are our most important stakeholders, not just “users”. The current financial system is broken. Banks charge high fees and make money from their members, not FOR them. “
But isn’t it inherently riskier to borrow money through decentralized applications than through a bank? Rach doesn’t believe.
“Risk, like beauty, is in the eye of the beholder. With the risk of physical cash being stolen, excessive lending rates, and physical threats to repay, the traditional system is not without its problems. Loans in DeFi are currently usually secured loans, that is, a loan that is based on a deposit and is therefore less risky for a lender. “
The way to 3.8 billion users
So the question is as old as the cryptocurrency itself – when can we expect mass adoption?
“Even with 5 million today, DeFi is a niche. This is an opportunity for companies like hi that use blockchain and other technologies to not only offer next-generation financial services, but also to make them available to 3.8 billion smartphones worldwide. The saturation is still a long way off, and will be found when the majority of people will benefit from the reduced fees, increased speed, and instant access to funds that DeFi offers (especially on mobile devices). “
Rach concludes, “With a decreasing reliance on Ethereum, DeFi services are becoming virtually frictionless and seamless. Crypto and fiat banking for the masses becomes a reality as we take the best of both worlds and create the most intuitive user experience. Ultimately, we believe this is the path to true financial inclusivity. “
Blockchain makes the impossible possible by offering a new system of interaction with funds that can democratize payments and savings, and even offer investments to those who currently do not have access to them. It can provide options for those who are at odds with unrealistic fees for services that we should all naturally have access to, depending on where we live. Non-profit banking is a real milestone for the blockchain and for the banking industry itself.